byJames McClister February 17, 2015

Miami Agent Magazine

Brazilians are spending more money in the U.S. than ever…and Miami is benefitting big.

A port of indulgence for Brazil’s elite, Miami has catered to South American investors for decades, helping them funnel huge sums into lavish, coastal condominiums. But now, following the recent reelection of Brazilian President Dilma Roussef, a number of the country’s biggest spenders are looking to increase their overseas holdings, and Miami is benefitting in a big way.

In a recent interview with The Wall Street Journal, Alyce Robertson, executive director of the Miami Downtown Development Authority, affirmed the impact Roussef’s reelection is having on South Florida.

“After the last election, we were talking to a lot of people concerned about getting their capital out of Brazil,” she said, adding that the exodus was largely a response to politics.

Brazilians Flee

With specific data unavailable, it’s difficult to quantify the recent influx of Brazilian investment. But throughout South Florida, developers, agents, bankers and a slew of other industry insiders are abuzz with talk of Brazil.

They speak of a swelling of Brazilian capital, aimed not just at property investments, but an increase in more prolonged and involved ventures, such as setting up businesses and obtaining residency and later citizenship for themselves and their families.

Genilde Guerra, an attorney at Kravitz & Guerra, told the Journal that Brazilian clients are mainly “concerned about the instability of Brazil’s political environment.

“They don’t want to be the last one’s to leave,” she said.

Not a 1980s/90s Repeat

According to the Brazilian Foreign Ministry, in 2013, approximately 3 million of the country’s 200 million lived abroad, and of those, one-third were in the U.S. Drawing from local sources, the Journal reported that Florida has become one of the most attractive destinations for these emigrating Brazilians, with as many as 300,000 living in the Sunshine State. Their presence is now so prominent in Miami that in 2013, Brazilians accounted for 51 percent of the city’s tourism.

This isn’t the first time the U.S. has taken on weighty injections of Brazilian immigrants. During the 80s and 90s, Brazil was brought under the wing of a harsh, U.S.-backed military junta that drove the country into near ruin, igniting a rash of economic problems, including hyperinflation and unemployment. Thousands of Brazilians fled the regime for a safer economic climate, with many finding haven in the U.S.

The difference between today and earlier migrations, is that before, Brazilians were entering the U.S. with little to their name, satisfied working low paying labor jobs. Today, it’s far more likely for them to bring wealth.

A New Class of Wealth

In the last year, the Brazilian real has lost approximately a fifth of its value against the dollar, and the country’s inflation rate is nearing its 6.5 percent limit, the Journal reported. According to the Economic Freedom Index, a joint project from the Journal and The Heritage Foundation, researchers also noted significant setbacks for businesses in Brazil, including declines in investment freedom and monetary freedom.

In the face of state-imposed hardships, many of Brazil’s elite are taking preemptive measures and moving their accounts offshore, building strong U.S. portfolios to support their emigrating families. They’re sinking their money into promising developments, buying land and building.

In 2014, Brazilian investor Jose Assumpcao, founder of Lider Aviacao, purchased a 37,000 square-foot plot in Edgewater, which included approvals to build a 16-story, 127-unit residential tower, the Daily Business Review reported. And he’s not the only one.

According to the Journal, Brazilians are now among Miami’s top three foreign buyers of high-price real estate, along with Argentines and Venezuelans.

Miami Hot, U.S. Hotter

To account for the high volumes of international investors pouring into the city, particularly those from China and Brazil, local officials recently created a special foreign investment center downtown to process EB5 visas, which are awarded to individuals investing $1,000,000 and who are creating or preserving at least 10 jobs for U.S. workers, not including investors and immediate family members.

The benefits for Miami are expected to be substantial.

“The City of Miami is staying true to the intent and mission of the United States Citizen Immigration Services by offering top-tier EB5 Regional Center projects to foreign investors which in turn will provide for the creation of thousands of jobs for our local residents,” Mikki Canton, managing director of Miami’s Office of International Business Development, said in a 2014 statement. “The mission of the City of Miami EB5 Regional Center is to create thousands of jobs for local residents and strengthen economic growth in South Florida.”

However, despite business between Miami and Brazil being up last year – 0.82 percent year-over-year from January to November, according to the U.S. Census Bureau – the city is losing market share. Brazil’s overall trade with the U.S. rose nearly twice as fast as with South Florida. With healthier savings, Brazilians are looking to the entire U.S. for opportunities.

London, Hong Kong, and New York rank as the top three cities for the ultra-rich, according to the 2012 Wealth Report released by real estate firm Knight Frank and Citi Private Bank.

The report is based on detailed data on the number, distribution, and preferred locations of high net-worth individuals (defined as households with more than $100 million in assets). This is the globe-straddling capitalist over-class that Cynthia Freeland has dubbed the “new global elite,” or what the report itself labels the global economic “plutonomy” of the “richest 1%.”

There are now 63,000 households worldwide with $100 million or more in assets, up 29 percent since 2006 and projected to rise even higher in the future. The top ten current preferred locations for the ultra-rich are:

London

New York

Hong Kong

Paris

Singapore

Miami

Geneva

Shanghai

Beijing

Berlin

The report also asked respondents to predict the most important cities in 10 years. The projected key cities of 2022 include:

London

New York

Beijing

Shanghai

Singapore

Hong Kong

Paris

São Paulo

Geneva

Berlin

On this list, Beijing and Shanghai move up, displacing Paris (which falls from fourth to seventh) and Miami (which drops off the list completely), along with Hong Kong and Singapore. Sao Paulo, Brazil, moves onto the list in eighth place.

What’s behind these rankings? According to the report, the ultra-rich value cities that offer “personal safety and security” most, followed by “economic openness” and “social stability” which top “luxury housing” and “excellent educational opportunities.” As the report’s authors explain:

The most significant driving force of any city is its people. It is crucial to have a livable environment for increasingly mobile populations, and to attract a significant workforce. More than one-third of the people in New York and London are foreign-born. Despite their astonishing growth, Asian economic powerhouses fail to reach that level of cosmopolitan culture. New York or London will continue to top the indices, but only if they ensure their strong cultural offers are unmatched and maintain open immigration policies.

But the rise of global superstar cities also has a dark side. According to Barron‘s Richard Morais:

Anyone who has recently tried to make their way through the thronged pavements of Piccadilly in London knows there’s another, more important and less politically-correct answer for why certain cities in the West will remain top dogs. The reason is flight capital. The globe’s rich aren’t really moving to London or New York – they are fleeing their home countries and cities.

Any private banker will tell you, that as soon as a centa-millionaire in Moscow, Beijing or São Paolo makes their fortune, the first thing they do is figure out how they can ferret away large chunks of that wealth to countries that guarantee political and personal freedoms, have sound legal systems, a favorable tax environment, good security and good schools for their kids. Those last two items are not to be underestimated. When asked what was the most important factor drawing them to a city, 63% of the globe’s super-rich said “personal security” and 21% said “education.”

The rise of these protected enclaves is creating very real tensions between the very wealthy and more average city residents.

Just one example – high-end apartments and townhouses in London and New York regularly top $50 million, pricing locals out of the market. It’s no coincidence that London boiled over into riots last summer and that the Occupy movement was born on Wall Street.

There is a very real danger that such disruptions are a “feature, not a bug” of global cities. As the Financial Times wrote last summer:

Globalisation has made our great cities incalculably richer but also increasingly divided and unequal. More than youth, ethnicity or even race, London’s riots are about class and the growing divide between the classes. This dynamic is not unique to London but is at work in many of the world’s great capitals. Instead of reducing and flattening economic distinctions, globalisation has made them sharper.

We make a big mistake when we look out across the peaks of privilege from our eyries in London, New York, Tokyo and Mumbai, and tell ourselves that the playing field is level. Our world, and especially its cities, is now spiky and divided.

Commercial Investors Eye Single-Family Homes

Published on: Wednesday, March 07, 2012

Written by: David Bodamer

U.S. federal agencies are casting about for ways to pull the country’s housing market from the brink as reports from the Case-Schiller National Index indicate housing price falls for the eighth straight month. The Federal Housing and Finance Agency has announced a pilot program that will allow commercial investors to buy foreclosed single-family homes in bulk. The plan has several high-profile backers who are anxious for the opportunity to bid on these properties. Once purchased, the properties could be rented out or resold. For more on this continue reading the following article from National Real Estate Investor.

But might there be an unlikely savior on the horizon for the single-family sector in the form of commercial real estate investors? On Monday, the Federal Housing Finance Agency (FHFA) announced a pilot program through which it would take bids from investors to buy foreclosed residential properties in bulk for the purpose of turning them into rentals.

The pilot program is the result of an effort launched last summer by the FHFA, along with the Treasury Department and the Department of Housing and Urban Development, to solicit outside input on how the government could deal with its millions of real estate owned (REO) residential assets and help turn the housing market around. The first pool of assets is a group of 2,490 properties, including 2,849 units in some of the hardest-hit residential markets: Atlanta, Chicago, Florida, Las Vegas, Los Angeles and Phoenix. There are 1,743 single-family homes, 527 condos, seven manufactured homes, one co-op, 118 duplexes, 36 three-unit buildings and 58 four-unit buildings.

To date, investors have purchased homes in foreclosure auctions and rented them out. But investors can only buy one or two assets at a time this way. The idea here is to enable investors to buy larger pools of foreclosed homes in order to get them on the market as rentals and deal with the glut of troubled assets more quickly.

“This is another important milestone in our initiative designed to reduce taxpayer losses, stabilize neighborhoods and home values, shift to more private management of properties and reduce the supply of REO properties in the marketplace,” FHFA Acting Director Edward J. DeMarco said in a statement.

Investors must fill out a qualifying form on the FHFA’s REO Asset Disposition page, post a security deposit and sign a confidentiality agreement to access detailed information about the properties. According to the FHFA, only investors who qualified through this process will be eligible to bid.

INITIATIVE’S BACKERS

The concept of involving the private sector to help solve the foreclosure problem has some high-profile backers.

Lew Ranieri, who helped pioneer mortgage-backed securities in the 1970s, and Kenneth Rosen, chairman of real estate market research firm Rosen Consulting Group, are the main authors on a policy paper issued this monthlaying out how the private sector’s involvement could help turn around the housing market and deliver attractive returns to investors.

“Without question, this is an opportunistic place to make investments,” Rosen says. “It’s similar to what opportunity funds have done with commercial real estate. There are more than one million units to be auctioned. Instead of having small players buy the assets, this would allow for bulk acquisitions.”

Overall, 453,266 residential units are currently classified as REO. Of those, the federal government holds nearly 50 percent of the inventory through Fannie Mae and Freddie Mac and another 9 percent with the Federal Housing Administration. In addition, private label securities hold 33.3 percent of the REO inventory and banks hold 17.5 percent.

But gaining control of those assets is a time-consuming process. In existing auctions, properties are sold one at a time. Private equity investors have gotten involved in converting vacant homes into rental properties, according to Rosen. But creating bulk programs could increase interest by making it easier for large investors to amass portfolios.

Investors then have several strategies for how to handle the assets. According to the policy paper, “Homes can be purchased for three potential outcomes, depending on a range of factors: the micro-conditions of the home, employment and income of potential tenant/owners and the macro-conditions of the neighborhood and market.” Specifically, investors could choose to offer the units in rent-to-own, rent-to-rent or resale arrangements.

In a rent-to-own scenario, an investor would enter a long-term relationship with a tenant who would offer the renter a right-of-refusal to buy the home. The lease could also be structured to give the tenant a share of any upside in a property’s sale. According to the policy paper, “This share can be structured to be payable regardless of whether or not the tenant purchases the home or be restricted to only if the tenant converts to ownership. This share can be pro-rated down or eliminated if a tenant leaves before the ?ve-year term.”

In a rent-to-rent scenario, the investor operates the asset as a straight rental property. And a resale would simply involve moving the asset to an owner-occupier.

“The private sector has a lot of solutions to the mortgage problem,” Rosen says. “They are engaged and want to be involved. I think this is something that has to be pushed as fast as it can.”

One caveat Rosen notes is that the government needs to ensure that the participants in the program are legitimate players. For example, the policy paper notes, “Programs that we deem to be unscrupulous are requiring tenants to pay a down-payment when signing a lease. We believe ?rst and last month’s rent and/or a security deposit in keeping with state law is acceptable, but do not believe additional advance payments are warranted.”

If all goes well, Rosen thinks the pilot program could be expanded “full scale” within a year with the government offering its inventory in bulk sales as well as banks and private-label securities conducting similar programs.

South Florida’s real estate crisis in one chart

South Florida’s housing crash may be old news, but recent data offer some valuable perspective.The Federal Housing Finance Agency maintains appreciation indices for metropolitan areas, which are similar to the famous Case-Shiller index but more local. By stacking up Broward and Miami-Dade’s indices to the nation’s, the warning signs are hard to miss.

The chart anchors all three indices to the first quarter of 2000, so the numbers show appreciation since then. Real estate got out of hand across the country, with appreciation peaking nationally at 166 percent in 2007. But in Broward, values soared 272 percent. Miami-Dade did even better, up 283 percent.

It’s easy to see how quickly values collapsed, but the chart also points out something that tends to be overlooked amid the wreckage of real estate. Home values are still ahead of where they were in 2003.

But perhaps more surprising, local property has actually held its value better than the average home in the United States. According to the FHFA, the average U.S. home is worth about 40 percent more than it was at the start of 2000. In Broward, the average home is worth 49 percent more. In Miami-Dade, it’s 56 percent more valuable.

A sign of resiliency, or a hint that South Florida still has some dropping to do? We’ll probably find out this year.

The Miami Herald’s Economic Time Machine charts South Florida’s recovery from the Great Recession by comparing current conditions to levels set before the downturn.

The ETM crunches 60 local indicators to measure the economic activity, then finds when each indicator was at that level before the 2007-2009 recession. At the moment, the current economy most resembles where it was in June 2002. Visit miamiherald.com/economic-time-machine for updates and analysis of the latest economic data.